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Broadcom takeover: AVGO acquisition of VMware to undergo lengthy EC probe

By Jenny McCall

11:24, 9 December 2022

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A image of Executive Vice President of the European Commission European Commission Margrethe Vestager
Executive Vice President of the EC Margrethe Vestager (pictured) will launch a lengthy investigation into AVGO takeover of WMware - Photo: Getty Images

Just as tech giant Broadcom (AVGO) thought it would move through its $61bn (£51bn) takeover of software company VMware (VMW) unscathed, the European Commission (EC) has scuppered its plans, and it was announced on Thursday that the deal will now be subject to a lengthy probing by the EU regulators.

AVGO stock price was up on Thursday by over 2% - the day it became apparent that its acquisition of VMware would be subjected to a six-month investigation by the EC. Over the last four weeks, AVGO’s share price has been up 10%, which is good news for the tech giant. Plus, Broadcom's acquisition of VMW has been given the seal of approval by IBM (IBM) CEO Arvind Krishna.

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Broadcom (AVGO) share price chart

AVGO won't be able to dodge the EC probe 

However, yesterday a news report by MLex stated that AVGO would be subjected to an in-depth European antitrust review, and a full investigation will be announced on 20 December, with a deadline for completion by mid-May.

Back in October, AVGO tried to dodge the phase two stage of the EU’s investigation and fast-track the deal so that it could be approved – as quickly as possible.

AVGO was hoping the EC would listen to its pleas to have a quicker investigation. The tech giant says that the deal will create more competition in the cloud market, where there are very big players already, and the chipmaker is hoping the antitrust approval in the EU will be sped up.

Broadcom names market competitors Amazon (AMZN), Microsoft (MSFT), and Google (GOOG) to its advantage and states that the deal does not have to undergo a phase two regulatory approval. If the takeover did go to phase two, it would mean the European Commission (EC) would take at least four months to investigate the acquisition.

AVGO, which was hoping it can shave at least four months off the timeline, essentially tried to argue that the takeover will boost competition in the market with other cloud giants such as AMZN and MSFT.

“For the Commission to go to phase two, there has to be a real competition problem - horizontal, vertical, foreclosure risk - and I think we can show those risks don’t really exist in this case,” a source close to the deal told Reuters.

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But it’s not just the EC that AVGO should be worried about.

VMware (VMW) share price chart

UK regulators also on AVGO's back 

Last month, the UK’s Competition and Markets Authority (CMA) announced it would initiate an investigation into the proposed deal.

Britain's CMA is looking through the deal with a fine tooth comb to see if this “transaction” will cause a “substantial lessening” of competition within the markets.

“The Competition and Markets Authority (CMA) is considering whether it is or may be the case that this transaction if carried into effect, will result in the creation of a relevant merger situation under the merger provisions of the Enterprise Act 2002 and, if so, whether the creation of that situation may be expected to result in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services,” CMA wrote in a statement.

So, it appears the EU and other regulators have placed close attention on tech deals over the years as concerns start to grow about the power some companies have and the risk of there being just a few players in the market. Bigger companies have acquired smaller start-ups, and regulatory bodies have grown concerned that this could lessen competition in the market.

Currently, tech group MSFT is in the process of acquiring gaming company Activision Blizzard (ATVI), and UK regulators are eyeing up the deal closely, as concerns grow that this takeover could affect competition in the marketplace.

The fate of the AVGO takeover of VMware (VMW) is in the hands of global regulators.

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